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Several potential issues related to the implementation of the new revenue standard issued jointly by the Financial Accounting Standards Board and the International Accounting Standards Board were discussed at the January 26, 2015, meeting of the joint revenue transition resource group (TRG). Deloitte summarizes several of the meeting’s important topics in its latest “TRG Snapshot.”

The new revenue standard, issued by the FASB and IASB last May, has generated a number of implementation questions that are being discussed by the boards’ joint transition resource group on revenue recognition. Deloitte’s “Heads Up” summarizes and compares the tentative decisions made at a recent meeting of the joint transition resource group related to licenses of intellectual property and identifying performance obligations.

One of the biggest accounting developments in 2014 was the FASB’s and IASB’s issuance of their joint standard on revenue recognition. Deloitte’s "Accounting Roundup: Year in Review" summarizes final guidance released during 2014 that could affect reporting and disclosures for the coming reporting season. It also provides an overview of the status of active FASB projects, which could significantly affect reporting and disclosure in 2015 and beyond, as well as a table of significant adoption dates and deadlines.

Deloitte Views & Analysis

Non-U.S. companies pursuing cross-border M&A or otherwise investing in the U.S. face many decisions as they consider when, where and how to do so, as well as potential regulatory hurdles. Whether to acquire or go greenfield, how a U.S. investment might support the global growth strategy and what brand issues an investment might present are just a few questions CFOs and other C-suite executives should consider as they begin identifying potential targets for investment and possible challenges.

Tax considerations can be among the most important issues for non-U.S. companies pursuing cross-border M&A or direct investments in the U.S. Beth Mueller, a partner at Deloitte Tax LLP and U.S. Inbound Services leader, discusses ways to approach some of the critical tax considerations highlighted in the report, "Branching Out: 10 Questions for Inbound U.S. Investors," and issues CFOs should address with their tax directors when evaluating and planning an inbound investment.

As the likelihood of encountering IFRS with respect to a potential target increases, it’s important for CFOs of acquisitive companies to understand the differences between IFRS and U.S. GAAP and the potential impact on deal structuring and modeling. Differing local country or company interpretations of IFRS may result in challenges related to benchmarking and valuation multiples as well as increased disputes over purchase price adjustments and earn-out targets.

FASB and IASB Prepare to Issue Final Standard on Revenue Recognition

The FASB and IASB have essentially finished redeliberating their November 2011 revised exposure draft¹ “Revenue from Contracts with Customers” and plan to jointly issue a final standard in the second quarter of 2013. The standard² will outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance.

See Deloitte’s Heads Up for an overview of the FASB’s and IASB’s proposed revenue recognition model, including decisions made by the boards to date related to the proposed model’s (1) steps, (2) disclosure requirements and (3) effective date and transition. It also provides insight into some potential income tax and industry-specific implications.

This latest issues of Heads Up also includes a discussion on applying the proposed revenue model. It also addresses required disclosures, effective date and transition, and income tax implications as well as other notable provisions of the proposed model. The implications for various industries are discussed throughout.

Background and Key Provisions of the Proposed Revenue Model

The goal of the revenue recognition project (which began in 2002) is to clarify and converge the revenue recognition principles under U.S. GAAP and IFRSs and to develop guidance that would streamline and enhance revenue recognition requirements while also providing “a more robust framework for addressing revenue issues.” The boards aim to improve the consistency of requirements, comparability of revenue recognition practices and usefulness of disclosures.

The core principle of the proposed revenue model is that “an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The proposed model would apply to all contracts with customers except those that are within the scope of certain other topics in the “FASB Accounting Standards Codification.”³ Further, contracts with counterparties that are collaborators or partners, rather than customers, do not represent contracts with customers and would be outside its scope.

In applying the proposed model to contracts within its scope, an entity would do the following

—“Identify the contract with a customer.”
—“Identify the separate performance obligations in the contract.”
—“Determine the transaction price.”
—“Allocate the transaction price to the separate performance obligations in the contract.”
—“Recognize revenue when (or as) the entity satisfies a performance obligation.”

Transfers of assets that are not an output of an entity’s ordinary activities (such as the sale of property, plant, and equipment, real estate, or intangible assets) would be within the scope of certain aspects of the proposed model. Specifically, the proposed model’s criteria for determining the existence of a contract, measurement and control principles would apply to these transfers, and the accounting guidance currently used to account for these transactions (e.g., ASC 360-20) would be superseded.

Endnotes1. Issued by the FASB as a proposed Accounting Standards Update.2. References in this document to the “standard,” the “proposed model” or the “proposed revenue model” are to the original (June 2010) revenue ED as modified by the revised ED and by subsequent board decisions. Quoted material is also from those sources. For a comprehensive summary of board decisions to date, see the boards’ revenue recognition project update. Board decisions are tentative until the standard is finalized.3. The proposed model would not apply to contracts within the scope of ASC 840 (leases) and ASC 944 (insurance); contractual rights or obligations within the scope of ASC 310, ASC 320, ASC 405, ASC 470, ASC 815, ASC 825 and ASC 860 (primarily various types of financial instruments); contracts within the scope of ASC 460 (guarantees other than product warranties); and nonmonetary exchanges whose purpose is to facilitate a sale to another party. (For titles of “FASB Accounting Standards Codification” references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”)